Local government employers are set to benefit from significantly lower pension costs following a sharp improvement in the financial health of the Local Government Pension Scheme (LGPS), new analysis from Pensions UK shows.
The average employer contribution rate has fallen from 21.3% to 16.6% between the 2022 and 2025 triennial valuations – a reduction of around 22%. Eighty-five of the 86 LGPS funds in England and Wales recorded lower rates, with only one showing a marginal increase.
The improvement has been driven by stronger funding positions across the board. The average funding level rose from 105% to 122% over the period, with the number of funds above full funding increasing from 61 to 79. Just eight funds remain below 100% funded.
Pensions UK policy lead Maria Espadinha said the figures ‘underline the long-term health’ of the scheme, adding that higher discount rates, updated assumptions and resilient asset performance had reduced liabilities and improved funding positions across England and Wales.
The lower contribution rates are expected to provide meaningful budget headroom for councils and other participating employers.
‘Crucially, this improved funding position is now feeding through into lower employer contribution requirements,’ Espadinha said.
‘Funds have had greater flexibility to reduce overall rates – particularly deficit recovery contributions – while keeping future service costs broadly stable, demonstrating the LGPS’s ability to deliver sustainable outcomes for employers over the long term.’
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